Chinese financial leasing expected to soar higher
Updated: 2012-01-19 07:58
By Zhuan Ti (China Daily)
The industry is poised for strong growth, expert says
The financial leasing industry in China has enjoyed remarkable growth by rising 2,500 percent in the past four years.
Total capital of the domestic sector has surged to 800 billion yuan ($127 billion) in 2011.
According to projections made by economists and experts at the 21st Century Annual Finance Summit of Asia, they anticipate more substantial growth in the years ahead.
A finance lease is a type of leasing that originated from the United States in the 1950s.
It has developed into a prosperous industry with more than 3,000 companies based in the US.
The listed number of companies has already surpassed 1,000 in Japan. Yet in contrast, China has just 260 companies in the sector. Hence, the financial leasing industry here shows room for tremendous growth potential.
"Despite its relatively small size, Chinese companies are operating with high efficiency", said Ji Fuxing, vice president of ICBC Financial Leasing, a leasing company with 80 billion yuan in total assets.
"A finance lease is a potential solution to ease difficulties faced by small- and medium-sized enterprises (SMEs)", Ji added. "The industry could enjoy accelerated growth."
SMEs play a pivotal role in the nation's economy.
In 1953, the US passed the Small Business Act to develop growth of small businesses.
On Oct 6 last year, Premier Wen Jiabao visited Zhejiang province, to emphasize the strategy of supporting small businesses to boost the national economy.
However, SMEs face difficulties with financing. Direct methods, - either through public offerings, private placements or the issuance of corporate bonds - stand beyond their reach due to high liquidity thresholds.
Obtaining money through indirect financing such as bank loans seems dim, since most bank credit resources are strongly influenced by large State-owned corporations and big government projects, the vice president said.
A huge gap exists between credit supply and credit demands for the small business sector.
Many reasons explain the phenomenon, such as the risk avoidance tendencies of investors and financial institutions, as well as the lack of collateral assets for SMEs, Ji noted.
Ji believes finance leases can fill the gap by establishing win-win relationships between financial institutions and SMEs.
"Normally, SMEs struggle with a short financing period to payback loans. Accordingly, they often stretch their financing periods, which increases a greater imbalance between debts and assets", said Ji.
Serving the needs of small businesses would remain a priority for China's economic development in the near future.
The financial leasing industry, targeting SMEs, could capture a huge market with favorable policies.
According to Ji, SMEs account for more than half of ICBC Financial Leasing's client portfolio and the company plans to boost the total value of the company's lease contracts to 10 billion yuan in the next six months.
(China Daily 01/19/2012 page17)